Could you save cash by giving up your car?
The answer involves weighing your costs and alternatives
● When you count the costs, especially in light of the latest petrol-price hike, you realise just how erosive car ownership is on personal-wealth creation.
Would you be better off selling your car and using a ride-sharing service such as flx or a ride-hailing service such as Uber, or downgrading to a cheaper car?
As an illustration of one person’s mobility spend, consider Bill, who drives a VW Polo 1.6 valued at R250,000. His instalment is about R2,500 a month. He spends R800 a month on petrol. His office parking costs him R750 a month and insurance R900 a month. He puts away R500 a month for maintenance. His car is depreciating at a rate of R1,500 a month. This amounts to R6,950 a month.
If Bill used flx, his commute to work could cost him R1,600 a month. Flx links employers to corporate-shuttle providers, which then transport employees between their homes and work in Wi-Fi-enabled vehicles. Purpose-built for ride-sharing, flx works out your mileage and charges you accordingly. If the cost of parking is included in your salary package, your company could subsidise your travel expenses to this amount.
Justin Coetzee, CEO of GoMetro, the company that developed flx, says the assumptions used in Bill’s case include depreciation of about R90,000 over five years and fuel consumption at just under R1/km. Since the stats are about six months old, he says Bill’s actual costs are probably higher.
Flx is subsidising a pilot programme with three staff members of a Cape Town-based asset manager.
Coetzee says that while none of the participants have sold their cars, they’re saving “a small fortune”.
“They’re also scoring by not doing mileage or incurring the costs of wear and tear, and could be saving on insurance.”
One of the participants is a business consultant, who says she gets 90 minutes of work done every day in the shuttle.
Coetzee says employees who have to fight their way through peak-hour traffic or endure delays using public transport arrive at work stressed. Then, over coffee, they catch up with colleagues and check social media before settling down to work, all of which is counterproductive. In a shuttle, they get time to catch up with colleagues, and answer personal e-mails and messages before they get to work, and so are able to start working while en route.
Max Popescu, an actuary at Virtual Actuary, is a vehicle-less Uber user. He says the value of your time is one of the most pertinent factors when weighing the costs of your travel. “Are you more productive as a result of not having to drive, or less stressed as a result of not dealing with traffic?”
Last year MyTreasury, an independent price-comparison website, worked out that if you drive a fully financed Toyota Corolla (the car most commonly used by UberX drivers), valued at R300,900, for about 40km a day (the average mileage done by car owners in SA), it would cost you about R111,000 a year.
Travelling the same distance in an UberX would cost you R20,000 more.
However, if you factor in the value of your time at R2.50/km and spend half of your journey working, you would save R14,000 a year by using Uber. The value of time per kilometre is based on an annual income of R320,000, which translates to an hourly rate of R150.
When Popescu updated these figures — to account for the cost of a Toyota Corolla 1.8 Prestige (R328,000) and a fuel price of R16.10/l — the annual cost of owning such a car would be R117,000.
Using Uber instead, you could save R22,000 a year if you place the R2.50/km value on your time. Consider also that many of the costs of owning a car are fixed and unaffected by distance travelled, Popescu says. Depreciation and fuel are exceptions, because these accelerate with distance travelled.
However, with Uber you pay only for distance travelled. If you don’t use it, you don’t pay. Effectively, owning a car makes sense if you travel long distances, he says.
“This naturally leads to a break-even point, or a point at which you should be indifferent to either owning a car or Ubering,” Popescu says. This does depend on the car you drive, but petrol consumed is built into the calculation.
“If you take into account the value of your time, the break-even point for the driver of the Toyota Corolla is approximately 50km a day. If you don’t account for the value of your time, it is shy of 35km a day.
“So, though the cost of an Uber stays at R9/km, the cost of owning a car — in this case a Toyota Corolla — varies between R26.50/km and R4.20/km, depending on whether you drive 10km a day or 90km a day.”
The type of car you drive is also crucial. The cheaper the car is to own and run, the less likely that Ubering will be worth it.
Based on calculations by Popescu, the break-even point for someone driving an Audi A4 2.0 TDI is 46km a day, assuming the driver is not placing a value on their time. If they are, it’s 70km a day. In a Toyota Corolla 1.8 Prestige it’s 33km a day and 50km a day, respectively. For a Kia Picanto, it’s 18km a day and 27km a day respectively. This is assuming that the drivers all place the same value on their time.
When it comes to the question of whether you should downgrade to a cheaper car, consider a number of issues, including whether you have paid off the vehicle, the resale value, the cost of buying a cheaper vehicle, and running costs.
A smaller, cheaper vehicle will cost less in fuel, insurance and maintenance, and your depreciation will be lower.
Remember that whatever you have lost in depreciation on a more expensive vehicle, you are unlikely to recoup, regardless of whether you sell the vehicle now or later.
Popescu says indicative costs, based on specific financing terms, show the difference for financing, depreciation and insurance premiums alone between different cars. For example, an Audi A4 is about R8,100 a month, whereas the monthly cost of owning the Toyota is R6,100 and the Kia R3,400.